Balancing Digital Aspirations While Addressing Risk Management Fundamentals: Observations From Citi Treasury Diagnostics

34 FX RISK MANAGEMENT: NET INVESTMENT HEDGING Types of Risks Hedged Objectives for Hedging Net Investment in Foreign Operations 55% 63% FX-denominated receivables/payables (including investments/debt) To protect against major devaluations in currencies Earnings translation Net investments hedged where the carry (the spot to forward differential) is favorable 64% 36% 50% 23% 25% 23% 12% 22% 16% Forecasted FX-denominated exposures FX-denominated debt issued in order to fund a capital contribution to a subsidiary and designating the FX liability as a net investment hedge as a convenient way to avoid P&L volatility Contingent risks, including bid-to-award risks or M&A Investors care about the value of our investments as translated to reporting currency To protect the value of regulatory capital in foreign subsidiaries Investment will be sold at some time in the future To protect against negative debt covenants tied to net equity value 13% 14% Net investment in foreign operations To protect the value of a forecasted intercompany dividend payment 23% of survey respondents reported hedging net investment in foreign operations. Protecting against currency devaluation (63%) and designating FX debt as a net investment hedge to mitigate P&L volatility (50%) were cited as the two primary reasons.